Deep-Value Dividend Play Occidental Petroleum Bought By Insiders
The insiders don’t hold a lot of Occidental Petroleum (NYSE: OXY) and their activity isn’t robust, mixed is the better word, but the latest transaction is telling because it comes just before the Q1 earnings were set to be released. The insider, CEO Vicki A. Hollub, bought just over 14,000 shares for just under $800,000 about two weeks before earnings were to be released which suggests to us the earnings are going to be good. Not only is demand for products up but pricing is at record highs and Occidental’s competition are all reporting windfall results and the institutions have been buying as well.
The institutional activity turned net bearish in Q2 leading into the earrings report but we chalk that up to profit-taking and rotation following a 500% increase in share prices. The key takeaway here is that institutional holdings are over 86% and have been growing over the past year. The most noteworthy institution is Berkshire Hathaway which made multiple purchases this year and this quarter bringing its total holdings to over 15%. The takeaway here is that institutions are holding this stock and the most followed investment guru in the world is building a sizeable position.
Deep Value Occidental Is A Dividend Story Worth Noting
Occidental is trading at a deep discount to the broad market and even to its own peers. It is trading at about 6.35X its forward earnings while Exxon and Chevron are both commanding higher multiples. This suggests to us a multiple expansion is possible and that tailwind could be amplified by better-than-consensus results when the company reports. As for the dividend, the company is paying a yield of only 0.90% but this is the COVID-induced rate. Occidental has not yet increased its dividend to the pre-COVID level but we see it happening very soon. Assuming the Q1 results and outlook for profits are as good as what we’ve seen from the rest of the industry a dividend increase is more than likely. The old payment of $0.79 quarterly would be worth 5.25% in yield and only 35% of the current earnings consensus.
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The 16 analysts covering the stock rate it a weak Buy but the sentiment has been trending higher over the past year. The Insidertrades.com consensus price target of $62.21 is only 5% above the current price action, however, but it too has been trending higher. The consensus is up more than double over the past year and up in the 30 and 90-day comparisons and will move even higher following the Q1 results. The high price target of $90 is more in-line with our view of the market and was set very recently by Raymond James. Raymond James rates the stock at Strong Buy.
As for the consensus estimates for Q1 results, the analysts are expecting revenue to be flat on a sequential basis and we just don’t see that happening. Not only is WTI trading at a level almost 25% above the prior quarter’s average but demand has not faltered. If anything, we are expecting to see this company grow revenue by mid-single-digits sequential at least.
The Technical Outlook: Occidental Petroleum Is Waiting For A Catalyst
Price action in OXY moved up to a multiyear high prior to the Q1 release and is now consolidating waiting for the next catalysts. Assuming the report is as good as we think it will be, we see this stock moving higher in the wake of the report if not immediately. There is no reason to think oil prices are coming down anytime soon which means robust profitability even if demand falls off. In that scenario, this company should be able to raise the dividend and that should draw new money into the stock. If demand doesn’t fall off windfall profits should continue over the course of the next several quarters at least.
Companies in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|Occidental Petroleum (OXY)||$60.44||+2.6%||0.86%||9.20||Buy||$69.00|